Feds push for strong for-profit college rule

If the Obama administration gets its way, for-profit colleges will soon face tighter, tougher regulations based on how much debt their graduates carry.

The Education Department proposed a new regulation Friday as a starting point for negotiations to rewrite a 2011 version thrown out in court last year. It’s an opening bid in a process that will likely include months of contentious arguing over one of the most controversial issues the department has ever tackled.

Text Size

-

+

reset

Despite the setback in court, the administration isn’t backing down. If anything, the new regulation is stricter than the previous version. The regulation would cut off federal aid to programs at for-profit colleges and vocational programs at all colleges whose graduates’ debt is more than 30 percent of their discretionary income and 12 percent of their annual income for two out of three years.

And the regulation would create a new warning zone for programs whose graduates’ debt exceeds 8 percent of discretionary income or 20 percent of annual income. Those programs would have to warn prospective students and limit their enrollment. After four years in the warning zone, the programs would lose federal financial aid.

The proposed regulations would apply to twice as many programs — more than 11,000 — than the previous rule because it would apply to all vocational programs with at least 10 students. And about twice as many would fail: 974 under the new proposal, as opposed to 544 under the old regulation, the department said. Another 1,410 would be in the warning zone.

A panel of representatives from for-profit colleges, nonprofit colleges, consumer groups and others meets Sept. 9 to begin wrangling over the regulations.

But if the group doesn’t reach consensus — and agreement on contentious issues has been rare in recent years — the department will write the regulation itself.

“There are substantive differences … that go beyond simple compliance with the recent court rulings,” said Noah Black, vice president of communications at the Association of Private Sector Colleges and Universities. “This type of draft regulation raises doubts on the level of interest at the department for working with all of postsecondary education to create meaningful change that puts the interests and outcomes of students first.”

The Education Department has been trying to regulate for-profit colleges for most of President Barack Obama’s time in office. An early proposal in 2010, which would have cut some colleges off from aid immediately based on debt-to-income ratios and repayment rates, was softened before it was finalized in 2011. The final rule also relied on debt-to-income ratios, but would also have judged colleges based on a loan repayment rate of 35 percent.

A federal judge threw out the repayment rate rule last summer, calling it too arbitrary, which essentially made the regulation unenforceable. The new proposal doesn’t include the repayment rate. But it includes some ideas — like the warning zone — that come from the initial 2010 proposal that was later softened.

“The repayment rate was saving a good number of people, and now it’s gone,” said Ben Miller, a senior policy analyst with the New America Foundation who summed up the proposed regulation as “tougher and leaner” than the version rejected by the courts. “More people are going to be held accountable, and more people are going to be stuck at the bottom area. Adding that middle zone does take up a substantial share of programs.”

Consumer advocates argue that the repayment rate was a necessary measure because it was the only way the Education Department had to look at what happens to students who didn’t graduate. While a federal judge said the 35 percent threshold wasn’t justified, there was no reason for the department to reject the rate entirely, they said.

Negotiators have said they’re optimistic that they can reach consensus. But the panel includes representatives of for-profit colleges and traditional higher education as well as consumer advocates who are strong critics, and most observers doubt that they’ll be able to agree.